Mortgage Choice sell-off despite good results

Mortgage Choice (MOC) suffered its worst sell-off this year despite delivering better than expected interim results.

Mortgage Choice (MOC) suffered its worst sell-off this year despite delivering better-than-expected interim results.

Shares in the mortgage broker slumped 4% to $3.10 after management revealed a 14.7% uplift in cash net profit to $9 million for the six months to end December as it achieved its highest half-year home loan settlements on record. 

That is a good result given that consensus forecast is tipping flat earnings for 2013-14. The risk is to the upside for Mortgage Choice as management is expecting further loan growth on the back of the resurgent housing market.

There are two potential reasons for the sell-down. The stock had rallied to its highest level since June 2007 of $3.23 yesterday and was primed for some profit taking.

Some investors might also have been disappointed that Mortgage Choice has not managed to increase its market share as its annual share of new home loans held steady at 3.9%.

Some might also be concerned that the stock has run too hard as it is trading on a 2013-14 price-earnings multiple of around 20 times.

On the flipside, the company is well managed and has a good track record. Its full year dividend is also likely to beat consensus expectations of 14.8 cents a share given that Mortgage Choice has a tendency to pay a fatter final dividend.

The company lifted its interim dividend by 25% to 7.5 cents. This means the stock is likely to be sitting on a yield of over 7% once franking credits are included.

Further, corporate interest will likely see the stock supported on any dips as Tom Elliott has highlighted the stock as one of his three hot takeover buys.

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